As you are likely aware, the estate, gift and generation-
skipping transfer (GST) taxes all face significant uncertainty in
2010.
From its inception, legislation enacted in 2001 provided for the complete repeal of estate taxes for one year beginning January 1, 2010 returning to pre-2001 law in 2011. Virtually all estate planners expected that Congress would remedy the situation it created by passing permanent estate legislation prior to 2010. Shockingly, Congress failed to pass pending legislation allowing, at least for the time being unless reinstated retroactively, the complete repeal of estate tax.
Most estate planners still believe that legislation creating a permanent estate tax law will pass in early 2010. To add to the confusion, there is speculation that Congress may enact such legislation retroactively to January 1, 2010.
If the legislation is retroactive to January 1, 2010, there is further speculation that interested parties (executors and beneficiaries of certain individuals dying between December 31, 2009 and the date legislation is enacted) may challenge the constitutionality of the retroactive date. If this is the case, it will likely be years before we know the estate tax treatment for individuals who die during this period.
How does all this affect you?
Most importantly, many wills have general language and formulae that determine the funding of trusts based on the amount which can be transferred without incurring estate tax. These same wills often provide that the balance of the estate funds marital trusts for the benefit of the surviving spouse. Since no estate tax currently exists, there is tremendous uncertainty about how wills with this language will be interpreted. If your will includes language which provides that bequests are based on estate tax exemptions or credits, there is currently a significant risk that the distribution of your estate to your beneficiaries will not be in the manner that was intended by you. This concern might become irrelevant when and if a new law is passed but is worth consideration in the meantime.
While there appear to be gifting opportunities based on the current estate and GST tax law, they come with a huge risk if any new legislation is made retroactive. As noted above, many estate planners think that any retroactive law will likely be tested by the court system because of the large dollar amounts involved. Even so, this will take a long time to play out and is probably a risk that not many people will consider worth taking.
What should you do now?
A periodic review of your will and estate plan is always highly recommended, now more than ever. Now is the perfect time to contact your estate attorney or your advisor at BSPJ to determine the affect of the current law on the treatment of your estate and to plan for future legislation to both maximize the wealth distributed to your beneficiaries and to ensure that those distributions are in the manner that you intend.
If you have questions regarding this issue or how it could affect you, please contact Marshall Schwartz, Partner, at 678-741-2524 or mschwartz@bspj.com.